- Rate hikes have backfired on the Federal Reserve's efforts to fight housing inflation, Jim Cramer said.
- That's because they've impacted banks' ability to loan out to developers, who in turn aren't able to increase available housing stock and reduce the cost of rent or the value of housing.
The Federal Reserve's "sole method" to fight inflation by hiking interest rates has "backfired," CNBC's Jim Cramer said Wednesday.
In their fight to curb housing inflation in particular, the Fed has been trying for months to not just slow inflation but reduce the value of housing and the cost of rent, Cramer continued.
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The reality is different, Cramer said. "In fact, the rate hikes, at this point, are boosting the price of shelter," Cramer said.
Cramer used a hypothetical property developer as an example, who looks to take advantage of higher rents in a particular area. Typically, Cramer said, developers will go to a bank (most likely a regional) to secure funding.
But to a glut of pandemic-era monetary supply, Cramer said, banks parked cash in longer-dated bonds that make it difficult to extend loans to that developer. Now that rates have been hiked, Cramer continued, those banks can't sell those long-dated bonds without realizing a huge loss: a situation similar to the collapse of Silicon Valley Bank.
Money Report
The rate hikes spark tighter lending standards, which make it harder to get a loan from a bank, which in turn constricts housing supply, Cramer said, meaning that the value of housing stays high and that rents don't come down as much as the Federal Reserve would like.
"They've defeated themselves," Cramer said. Federal Reserve chairman Jerome Powell is a "prudent" chief, Cramer said, but that may not be enough to stay the Fed's hand. That's because more hawkish Fed officials want to keep hitting rate hikes, Cramer said, whether or not they're really needed.
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